2016-08-04

Can Japan Turn the Corner on Deflation with Wage Targeting

One reason why I do not expect a Japan scenario for the U.S. (in terms of length of time, one has arguably already unfolded for 8 years) is because Americans will not tolerate low growth for decades on end. It turns out Japan's limit may just shy of three decades.

"I think it might be necessary to encourage a discussion throughout all ministries about a wage target policy," Yamamoto told reporters in Tokyo on Thursday morning. The veteran lawmaker, whose formal job description is minister responsible for regional revitalization, has made it clear he won’t be tied down with a narrow focus.

Every time I hear wage targets I think wage controls, but in Yamamoto is talking about targeting wage growth.

In pushing the notion of targeting specific increases in wages, Yamamoto, 67, is taking on one the key failings of Abenomics to date. Stagnation in wages is holding back household spending in Japan and undercutting efforts to generate the kind of steady gains in consumer prices needed for a healthy and expanding economy.

If Yamamoto can get a wage targeting policy implemented and get it to work, the end game for the yen will soon follow.